MANILA – Foreign direct investments (FDIs) to the Philippines contracted by 18.5 percent last March because of the pandemic but a recovery is expected in the second half due to proposed tax measures and the country’s fundamentals.
Data released by the Bangko Sentral ng Pilipinas (BSP) showed that net FDIs in the third month this year reached USD507 million, higher than the USD505 million in the previous month but lower than year-ago’s USD622 million net inflows.
This brought the first quarter figure net inflows to USD1.67 billion, 14.2 percent lower than year-ago’s USD1.95 billion.
Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said the drop of FDIs last March is a given because of the impact of the lockdowns here and abroad implemented to arrest the big rise of coronavirus disease 2019 (Covid-19) infections.
He said the community quarantines “could have already caused some cautious stance/scaling down on FDIs in recent months amid prospects of softer global economy and some disruptions in global supply chains and constraints in global logistics.”
“Reduced production and other business/economic activities largely due to the COVID-19 lockdowns/pandemic prompted some global companies/investors to cut capital expenditures and FDIs in response to and to adjust to softer demand/economic conditions,” he said in a reply to e-mailed questions from PNA.
The economist said further drop of FDIs until May is expected “with the sharp reduction in business and economic activities, as well as the worst of the global supply chain disruptions and other logistical constraints.”
He, on the other hand, said that re-opening of economies starting in the latter part of May is a factor for the possible rise of FDIs starting June.
“The sharp reduction in interest rates/borrowing costs as well as other measures by central banks to spur/encourage greater demand for loans/borrowings in an effort to stimulate more investments (including FDIs), create more jobs/employment, and increase overall business/economic activities to somewhat mitigate/limit the risks of recession lurking locally and in many countries worldwide,” he noted.
Ricafort said another plus for resumption of FDI flows to the country is the approval of the proposed Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) bill, which economic managers hope will be approved as soon as possible to be implemented by July 1.
He said upgrade by Japan Credit Rating Agency (JCRA) of its ratings on the Philippines from BBB + to A- and the affirmation by S&P Global Ratings of its BBB+ with stable outlook on the country are also projected to attract FDIs and, in turn, “generate more employment and other business/economic activities in the country, as needed to sustain economic recovery/rebound after the COVID-19 lockdowns.”
“The improved economic and credit fundamentals of the Philippines in recent years, amid attractive demographics, with the 12th largest population in the world at 109 million, would make the Philippines a compelling investment destination and additional hedge for the global supply chain of various global/multinational companies looking for increased growth/sales, thereby making the Philippines as an attractive production and marketing hub, as well as an entry point to other free trade agreement (FTA) partner countries of the Philippines,” he added. (PNA)
